China Macro: PMIs signal some easing of cost price pressures – On balance, China’s PMIs for June so far suggest that the economic recovery continues, but at a slightly slower pace. The official manufacturing PMI published on Wednesday dropped marginally to 50.9 (May: 51.0, consensus: 50.8). The official non-manufacturing PMI dropped by almost two points to 53.5 (May: 55.2, consensus: 55.3), partly reflecting some regional virus outbreaks that led to a re-tightening of restrictions. As a result, the official composite PMI fell to a four-month low of 52.9 (May: 54.2). Caixin’s manufacturing PMI published today fell by 0.7 point to 51.3 (consensus: 51.9). Caixin’s services and composite PMIs will be published the coming Monday.
Meanwhile, the exports sub-indices in both surveys weakened. The official export sub-index stayed below the neutral 50 mark for a second month in a row, while Caixin’s subindex dropped back to 50.1, very close to the neutral mark. This may be an indication that bottlenecks (for instance related to the scarcity of semiconductors and other inputs, and constraints in global shipping illustrated by a renewed rise in container freight tariffs from Chinese ports) are becoming a drag on exports. At the same time, after having risen to multiyear highs in May, the sub-index for input prices in both manufacturing surveys fell back sharply. This looks to be related to Beijing’s interventions to contain the commodity price boom, with commodities including metals having been a key driver of the recent acceleration in China’s producer price inflation (also see the China update in our June Global Monthly). More broadly, China’s credit cycle has already started turning since end 2020. This reflects a shift in policy priority from macro-economic stabilisation to financial derisking, with a specific crackdown on shadow banking, fin tech firms, online platforms and bitcoin.01